Wall Street gave up a substantial early gain and staggered to a mixed finish today after a Federal Reserve official warned that interest rates might continue to climb.
The Dow Jones industrials had surged more than 111 points before Federal Reserve Bank of Atlanta President Jack Guynn said in a speech that the Fed’s Open Market Committee was not yet ready to stop its policy of modest rate hikes.
Guynn’s comments set off profit-taking that left the Dow with a minimal gain and the Standard & Poor’s 500 and Nasdaq composite indexes with slight losses.
It was an earlier, bullish assessment of the economy from Fed Chairman Alan Greenspan, given in a speech broadcast at a meeting of central bankers in Beijing late on Monday, that triggered the initial advance.
Greenspan said the economy would remain strong and intimated that the Fed could soon stop raising interest rates, at least for the short term.
Analysts said there wasn’t enough fundamental strength to support the early gain.
“We had a nice rally this morning off of Greenspan’s comments, but we were really just up on fluff,” said Todd Leone, managing director of equity trading at SG Cowen Securities. “There’s not a lot of money flowing into the market, and when we hit the top of our range, we just bounced off it.”
The Dow rose 16.04, or 0.15%, to 10,483.07.
The Nasdaq, which had been up more than 1%, lost 8.60, or 0.41%, to 2,067.16, while the S&P 500 fell 0.25, or 0.02%, to 1,197.26.
The bond market moved higher as the stock market began to sell off. The yield on the 10-year Treasury note fell to 3.90% from 3.95% late on Monday. The dollar rose against the euro but fell against the Japanese yen, while gold prices moved higher.
Oil prices slid for a second straight session, with a barrel of light crude quoted at US$53.76 (€43.78), down 73 cents, on the New York Mercantile Exchange.
Despite the lower oil prices and Greenspan’s remarks, the light trading volume made it difficult for the markets to hold on to their early gains.
And with seemingly duelling comments from the Fed committee members, investors remained confused as to whether the economy was headed for a harsh slowdown and whether the Fed would continue raising interest rates through the summer.
“The cross currents here are nothing like I’ve ever seen,” said Brian Pears, head equity trader at Victory Capital Management in Cleveland. “There’s a lot of confusion and uncertainty over everything – the dollar, interest rates, oil, all sorts of things.”
General Motors Corp. helped the Dow hold on to at least part of the session’s gains. The struggling automaker said it will cut 25,000 jobs by 2008 as it attempts to rein in spending.
Chief Executive Rick Wagoner said the company expects to close additional assembly and component plants as well. GM gained 31 cents to 30.73.
Wall Street firm Morgan Stanley edged 3 cents higher to 49.14 even though another top employee left the company.
Managing director David Topper, a 22-year veteran, resigned to work for JPMorgan Chase & Co. as co-head of its US equity capital markets position, according to The New York Times. JPMorgan Chase slid 3 cents to 35.48.
Sears Holding Corp. posted a loss for the quarter, its first earnings report since Kmart Holding Corp. merged with Sears, Roebuck and Co. The company lost 7 cents per share, though would have turned a profit without one-time acquisition charges. Sears tumbled 13.41 to 141.50.
Monsanto Co., on the other hand, increased its profit forecasts due to stronger sales, though the agricultural products maker said its one-time charges related to recent acquisitions would increase. Monsanto gained 2.83 to 61.63.
Advancing issues outnumber decliners by nearly 5 to 2 on the New York Stock Exchange, where volume came to 1.45bn shares, compared with 1.17bn on Monday.
The Russell 2000 index of smaller companies was up 0.84, or 0.13%, at 623.78.